Northern Rock should be remutualised rather than sold to a rival or re-floated on the stock market, according to a report commissioned by the Building Societies Association and backed by John McFall, chairman of the House of Commons treasury select committee.

The report's findings fly in the face of moves by government to sell off Northern Rock ahead of next year's general election in a bid by prime minister Gordon Brown to take credit for the swift repayment of billions of taxpayers' money.

Northern Rock was nationalised in February 2008 after being thrown a £25bn lifeline by the treasury to prevent it going bankrupt. It currently owes the exchequer nearly £11bn.

In recent weeks, Richard Branson's Virgin Money and Tesco have held talks with UKFI, the government body that looks after taxpayer investments in failed British banks, with a view to buying the profitable parts of Northern Rock.

But today, an influential report from Professor Jonathan Michie at Oxford University calls on ministers to ditch sales plans, even though they could bring windfalls for the taxpayer and replenish government coffers. Instead Michie and his team of co-authors call for Northern Rock to return to its mutual status which it ditched in 1997 when it became a stock market listed bank.

Michie said: "Keeping a reformed Northern Rock independent of other banks meets a government policy objective of supporting competition and diversity through the maintenance of a strong mutually-owned financial sector. Mutuals which are owned by members – depositors and mortgage borrowers – can counter balance the short-termist pressure of City shareholders."

But Michie admits that converting Northern Rock into a mutual would mean that it could take longer to pay back taxpayer money as the process would be devoid of the sort of windfalls linked to a sale or stockmarket float.

McFall said: "Some lessons can be learnt by banks from building societies. Certain features of the building society model, including the comparatively low reliance on wholesale funding and focus on the protection of members rather than satisfaction of shareholders, have left most building societies better equipped to defend against the shockwaves of the current crisis."

He adds: "If ever there was a time for an expanded mutual sector, it's now. We desperately need to restore faith in financial services in this country."

But Brown is keen to prove to voters that his rescue of Northern Rock two years ago has been a financial success, so if at all possible, he wants Northern Rock returned to the private sector at a substantial profit. And he wants to do it before the election to avoid a Conservative government taking the credit.

The treasury has drawn up a means of separating the good and bad assets of Northern Rock to make it more attractive to a buyer. The nationalised bank holds deposits of £19.5bn and a mortgage book of £66.7bn. Some of the loans are so toxic that they would stay in public hands.

Last month, Tesco said it wanted to build a new UK bank from scratch. It has already bought out RBS's 50% stake in Tesco Personal Finance and has been tipped as a possible owner of the Rock.

Michie is calling for UKFI to conduct a feasibility study into how to turn the Rock back into a mutual. He says: "Not one of the converted building societies has survived the credit crunch as an independent financial institution. In contrast with the banks, most societies have stuck to the traditional practice of relying on retail deposits, limiting their use of wholesale market funding and making far less use of derivatives and other exotic instruments that were a major factor behind the financial crisis."